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#Financial Crime Prevention

Fines and financial stability

International Compliance Association

2014 , BBA , FCA , financial , fines

2014 has so far been a year of massive regulatory fines. The US authorities in particular have upped the ante in their actions against large financial institutions. Amongst the highest profile of these was the $9bn fine issued against BNP Paribas in July, which led recently to the resignation of the bank's chairman, Boudouin Prot.

The scale of such fines has been a source of some political discord, with the suggestion that the US regulatory authorities have taken a harder line on European institutions than upon their US counterparts. And such actions have also pointed to an emergent tension between prudential and conduct of business regulation. The head of the Bank of England's Prudential Regulation Authority (PRA), Andrew Bailey, remarked in the aftermath of BNP Paribas that it is important to ensure that such fines do not “undermine financial stability” More recently he addressed the BBA's Financial Crime and Sanctions conference, saying that: "I am trying to build capital in firms and it's draining out the other side [in fines]" a fact that could “have real or potentially negative effects on the safety and soundness of the firms we regulate”

Mr Bailey has called for closer cooperation between global regulators within decisions around the levels of fines, and is arguing for the greater involvement of prudential regulators in the process in order to "assess the consequences and feasibility of proposed actions and comment on them and, if necessary, rebut them".

At a national level, there appears to be a similar dialogue taking place between the PRA and Financial Conduct Authority, in the light of the latter's trend towards larger, albeit fewer, fines which was demonstrated most recently in the £38m fine against Barclays for client asset failings, a record for the offence.

It will be interesting to see how that dialogue develops and what its outcome will be, given that large, headline fines appear to have formed a cornerstone of the FCA's policy of "credible deterrence" up until now.

What are your views? How should credible deterrence be balanced against prudential considerations? And how is the debate likely to play out in practice? Any comments or views are, as ever, most welcome.


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